Little by little, AOL is offering investors more and more details about what the company will look like after it spins off from Time Warner (TWX).

The problem: The more AOL discloses, the less attractive the company looks.

The most recent nuggets come from a preliminary prospectus Time Warner filed with the Securities and Exchange Commission yesterday. Some, but not all, of this has broken out in previous filings or earnings announcements. In any case, it helps to see it all in one place.

The big picture: AOL’s subscription service, which accounts for the “vast majority” of the company’s operating income, is withering away. But advertising revenue, which was supposed to replace that money, has been declining for nearly two years (see tables below; click to enlarge):

And here’s a closer look at the ad business and its recent performance:

The good news for AOL is that some of this is the result of self-inflicted wounds, and it’s possible to heal some of them. The company’s previous regime seemed to go out of its way to mismanage and dismantle the sales force, for example, and if new CEO Tim Armstrong can rebuild that team, he can make a bit of headway.

The flip side is that some of AOL’s woes may be well beyond Armstrong’s control. Money from a Google (GOOG) search deal, which provided a third of AOL’s $2.1 billion in ad revenue last year–and had been increasing up until this year–is now dropping off, too.

Google dollars fell by $42 million in the most recent quarter, representing more than half the $75 million drop in ad dollars from its AOL Media unit. And Google income fell by $90 million in the last nine months, representing about 40 percent of $197 million decline in that period.

AOL says some of the Google decline stems from its declining subscriber base, which brought down search query volume. The rest is due to lower revenue per search query–that is, Google has changed its algorithm in way that ends up punishing AOL. But Armstrong can’t do a whole lot about either of these variables.

He can try extracting more money from Google, whose search deal expires at the end of next year, or from Microsoft (MSFT), which is trying to gain share any way it can.

Earlier this year, Armstrong turned down a new deal from Google and now says he’ll deal with search after he gets other things in place. But the longer he waits, the less leverage he may have.

AOL shareholders will be paying Armstrong well to figure this out, though. His three-year deal pays him a base of $1 million a year, plus annual cash bonuses of up to $4 million. In addition, he’s getting $20 million worth of stock grants to make up for Google shares he left on the table when he resigned from his old employer. And he’ll get stock options worth as much as 1.5 percent of the company once the spinoff is complete.

That said, AOL will also be paying former AOL CEO Randy Falco, who got tossed out in March. Falco will continue to pull down a $1 million salary through 2010–and he’ll get $7.5 million in bonuses through then as well. Former AOL COO Ron Grant, meanwhile, will earn $750,000 a year, plus another $3.3 million in bonuses.

That won’t help employees at Time Warner’s Time Inc. publishing unit: The company confirmed that it will make big cuts this quarter and spend up to $100 million on restructuring charges. This is different from the $100 million in cuts that had been previously reported, but it will still mean hundreds of layoffs at the publisher.

Time Warner also boosted its guidance for the remainder of the year and confirmed once again that it wants to spin off AOL before the end of the year. As well it should: The company said it has already spent a staggering $24 million on the spinoff so far this year, which includes $9 million in “pretax direct transaction costs (e.g., legal and professional fees).” It has spent another $83 million in restructuring charges at that unit in 2009.

As usual, Time Warner said ad sales have been lousy, but that its cable networks and film divisions had done okay. The breakdown:

• Cable networks: Revenue up five percent, because subscriber fees were up nine percent. Ad revenue was down one percent.
• Warner Bros. movie studio: Revenue down four percent, because of slumping DVD sales.
• Time Inc.: Revenue down 18 percent; advertising down 22 percent. Adjusted operating income down 42 percent. Hence the coming cuts.
• AOL: Revenue down 23 percent. Subscription revenue, which will continue to shrink, was down another 29 percent, and ad revenue, which is supposed to improve one day, was down 18 percent.

Viacom (VIA) says Q3 ad sales dropped four percent in the U.S., which is two points better than Q2. Companywide, revenue dropped three percent to $3.3 billion, which is what Wall Street expected, but the company slashed enough costs to produce an earnings surprise: After adjusting for one-time charges, Viacom posted earnings of 69 cents a share, well above the 57-cent consensus.

The company’s overall results do a nice job of illustrating why media companies and investors are so enamored of cable TV these days: Even though ads are slumping, the company was able to wring more out of cable system providers (and their subscribers), which more or less kept overall cable revenue flat.

Viacom’s movie business is much less meaningful than its TV operations, but in this case, it underperformed enough to drag the rest of the business down. Viacom blames a six percent drop on crummy DVD sales, which it says suffered compared with strong results a year ago.

But every studio in Hollywood is grappling with crummy DVD sales: The only real question is whether that’s a function of the economy or something larger.

I’ll  listen in on the call (8:30 am ET) and report back if there’s anything else worth noting.

UPDATE: CEO Philippe Dauman mentions the new “Sponge Bob Tickler” for the Apple (AAPL) iPhone app, which I believe means that at least one Viacom employee has won a private bet. Waiting to hear more about Q4 guidance.

The core question: Are Dauman and other Viacom execs mildly optimistic about recovery because of an easy comparison with a year ago or because ads are really coming back? A little of both, Dauman says: “Right now the tone is feeling better, but we have to be cautious.”

Surprise! They’re not that awful, at least by the diminished standards of the newspaper industry:

Excluding one-time charges, the publisher earned 16 cents per share on revenue of $570 million. Analysts expected the Times (NYT) to lose a penny per share on revenue of $561 million.

Ad revenue declined 26.9 percent, which is unpleasant but better than the previous quarter, when it dropped 30.2 percent. Internet revenue dropped by 7.2 percent and Internet ad revenue was down 8.2 percent. Both of those results are improvements over the previous quarter as well: Last quarter, Internet revenue was down 14.3 percent and Internet ad revenue was down 15.5 percent.

Some cautious optimism from CEO Janet Robinson:

Looking ahead, visibility remains limited for advertising in the fourth quarter. But as is the case across the media sector, we have seen encouraging signs of improvement in the overall economy and in discussions with our advertisers. Early in the fourth quarter, print advertising trends, in comparison to the third quarter, have improved modestly, while digital advertising trends are improving more significantly.

A little more color on digital: The big improvement this quarter was driven by a turnaround at the Times’s About.com content mill: Revenue was up 7.2 percent, way up from the 5.1 percent decline posted in the previous quarter. This makes sense, given that About is driven by pay-per-click ads and these have come back across the industry, led by Google (GOOG).

But the story is less impressive at the Times’s traditional Web sites. Ad revenue there was down 18.5 percent, which is better than the 21.6 percent drop the previous quarter, but nothing to write home about. As it has done in previous quarters, the publisher blames the decline on a drop in online classifieds, and I assume that much of the drop stems from vaporized employment ads. If this is the case, it’s going to be hard to move those numbers significantly for quite some time.

Now we get to find out just how good Google’s (GOOG) growth story is. Read three different analyst reports and you’ll get three different descriptions of Wall Street’s “consensus” estimates for the search giant’s Q3 numbers, out this afternoon. But Thomson Reuters thinks the Street expects earnings of $5.42 per share on revenue of $4.24, so we’ll go with that.

Here’s a more detailed breakdown of expectations, courtesy of Bernstein Research’s Jeffrey Lindsay. Note that per above, his description of consensus differs from the one at Thomson Reuters (click to enlarge):

More broadly, Wall Street expects to hear that U.S. ad dollars picked up in the last quarter, that international markets have as well, and that margins have held up due to cost-cutting, because Eric Schmidt has been saying all of those things out loud in recent days. Schmidt has also continued to talk up YouTube’s prospects for profits, so expect to hear about that this afternoon as well.

What else would you expect Ballmer to say? Now that Microsoft (MSFT) has got its hands on Yahoo’s (YHOO) search business–without paying a “boatload” for it–there isn’t a whole lot left to buy.

Emphasis on the word “buy.” Microsoft may still be willing to write a big check to boost its search share, specifically to get its hands on queries controlled by Time Warner’s (TWX) AOL, which has about three percent of the domestic search market.

AOL currently outsources its queries to Google (GOOG) in a deal that is said to make quite a bit of money for both sides of the table because AOL’s core user base tends to click through at a much higher rate than the rest of the Web. But AOL’s Google contract is expiring, and both Mountain View and Redmond are thought to be in hot pursuit of a new one. AOL CEO Tim Armstrong, though, is taking his time about his decision.

Also in the potential mix for Microsoft: A deal with News Corp. (NWS), which owns this site. Google’s $900 million search deal with News Corp.’s MySpace and IGN sites expires next year, but unlike the AOL deal, it has been a disappointment for Google.

It’s hard to imagine Ballmer spending much to wrest that one away, but News Corp. digital boss Jon Miller is doing what he can to drum up interest: He’s been talking up the idea of bundling multiple News Corp. properties–like, say, Dow Jones–into a larger deal. But since many of those properties have their own particular agreements and peculiarities, that’s going to take some doing.

As it is, now that investors and analysts have heard the more plausible deal–instead of buying NBCU for $35 billion, the cable giant kicks in up to $6 billion in cash, plus its cable networks, and gets 51 percent of NBCU–they’ve decided they hate that one, too.

Here’s the story in the graphic form (click chart to enlarge):

The Comcast-NBCU story broke after the market closed on Wednesday, in case that wasn’t clear. As I’m typing this, Comcast (CMCSA) is trading around $15.6 a share, down some seven percent since the talks became public.

Pull back a bit and you see that things could be much worse: As recently as March, Comcast was down below $12, and there wasn’t any multibillion dollar deal weighing down the shares then.

If anything, investors are much more forgiving to Comcast here than the professional chattering class of writers and analysts, who hate the deal. The conventional wisdom: Comcast’s dream of marrying cable programming with its cable service is misguided because media conglomerates like Time Warner (TWX) and News Corp (NWS) have already tried it and concluded that it didn’t work. If the Roberts family spends money on anything, they argue, it ought to be on shareholders, either via dividends or by buying back shares.

Here’s a sampling of today’s sentiments:

Pali Capital’s Rich Greenfield:

Comcast is trying to become a massive player in content…a move that investors should be frightened about, regardless of the initial “math” surrounding the transaction.

Barclays Capital Vijay Jayant:

Press reports of this potential transaction give credence to investor concerns that management has empire-building aspirations in general or that they may not believe enough in their own distribution business over the long term and therefore need to diversify their portfolio holdings…fundamentally, we believe that Comcast shareholders would be better served if the company were to invest in its own shares.

So if this is a trial balloon, you wouldn’t say it has been shot down completely. But it’s certainly sagging.

That’s 10 billion views, and that’s just counting Web surfers from the U.S. Factor in international visitors and…it would be a lot bigger.

The rest of the rankings look about the same as they as they always do–puny compared to Google’s (GOOG) status. That is, if you add up the next nine biggest sites, they won’t come close to matching YouTube’s share. But for the record, Hulu gained share but lost a position to Fox Interactive Media/MySpace, its corporate cousin from News Corp (NWS). And Time Warner’s (TWX) AOL replaced Disney’s (DIS) ABC at the bottom of the rankings. Click table to enlarge:

Yet another reason it’s amazing that it took Warner Music Group nine months to hammer out a deal to get its video back on YouTube–and bear in mind that they’re not there yet. If you’re in the music video business and you pull your videos off the world’s biggest video site, you had better have a very good reason for doing so.

In other shocking news: This movie is 12 years old. That’s older than Google!

Adobe (ADBE) is offering $21.50 in cash for each Omniture (OMTR) share. That’s a 25 percent premium over today’s closing price of $17.32–which includes a large run-up in the last few hours of the day, before trading was halted around 3:45 pm EDT. Good bet the folks at the Securities and Exchange Commission will take a look at that leap.

Release

We’ll get more details during a conference call later this morning, but if you want to kill time until then, you can play amateur M&A guy and draw up your own list of big media companies that will be buying or selling in the next year or so. The theory: Prices are way down, but seem to have settled. And there are plenty of potential buyers–particularly telco/cable guys–throwing off enough cash to finance some big-ticket items.

That’s still a million miles away from Apple’s (AAPL) commanding grip on the digital music market–it has held steady at around the 70 percent mark for years–but it’s better than nothing. And given that it was at zero less than two years ago, not terrible.

The eight percent number sounded familiar to me because that’s the number the music industry has been guesstimating for some time. But NPD’s stats suggest that Amazon (AMZN) has been grabbing share from smaller players. Not included on the list below, for instance, are NPD data showing that Wal-Mart’s (WMT) download store saw its share drop from 1.9 to 1.3 percent. Also of mild interest: Share gains for the RealNetworks (RNWK) Rhapsody Store and, yes, Microsoft’s (MSFT) Zune Marketplace.

Here’s the breakdown (click on chart to enlarge).

But let’s be clear: The digital music download market looks like the search market in that it’s dominated by a single giant player. But it’s not like search in that there aren’t many benefits to running a download store with a relatively small audience: The small margins for music sales mean that you need to be awfully big to make this a significant business. Which is another reason to be wary of would-be music players that point to their plans to sell downloads (think Imeem, and iLike).

[CORRECTION: My assertion about NPD's unit sales data below is incorrect: The tracking service counts 12 digital download singles as the equivalent of one CD. That makes Apple's share of the market that much more impressive, since singles make up the majority of iTunes sales.]

Ready to toss dirt on the old, unloved CD? You’re going to have to wait a while. Compact discs are increasingly hard to find (at least in physical stores), but someone out there keeps buying them: The ancient format still makes up the majority of music sales in the U.S.

Here are the data for the first half of the year, via the NPD Group consumer-tracking outfit: CDs made up 65 percent of the music market, while paid digital downloads accounted for 35 percent. The digital share has increased from 20 percent two years ago, and Apple’s iTunes (AAPL) alone makes up 25 percent of overall sales*, so you’re going to hear lots of proclamations about Steve Jobs’s ascent to the to top of the music industry.

But hold off on that, just a bit. Because those numbers are skewed even more in favor of the CD than they appear at first glance: They’re measuring unit sales, not dollars. And given that the majority of digital sales are in the single format (i.e., a dollar or so a pop), that means CDs (at $10 or so a pop) still account for the vast majority of music revenue.

Which is why the industry is still tied to CDs, even though no one you know buys them anymore. And it explains why the industry is working on two separate digital formats (dubbed “Cocktail” when sold by Apple, and CMX when sold by anyone else) designed to induce buyers to pay for CD-like bundles.

It won’t work. At best, they’ll convince some digital album buyers to upgrade, but the music business is once again a singles business, and it’s going to remain that way. But you can’t blame the industry for trying.

By the way, there are decent odds you’ll hear about Cocktail at Apple’s September event, which Digital Daily’s John Paczkowski says is scheduled for Sept. 9. Mark your calendar.

*If you’re keeping track: Wal-Mart (WMT) and Target (TGT) trail Apple in the overall market. And iTunes still dominates the digital download market with a 69 percent share, while Amazon (AMZN) is a distant second with eight percent.

Yesterday, the publisher said that overall ad revenue had dropped 30 percent in the last quarter, which wasn’t surprising. But Internet ad revenue dropped 15.5 percent, which was a surprise, since it’s an acceleration from the previous quarter’s loss. What gives?

Times officials have multiple explanations:

1. A lot of the loss comes from our classified ads, which have been vaporized.
2. This year’s numbers don’t look good because last year’s numbers were so great.
3. At least we’re not Yahoo (YHOO)!

Check out this exchange from yesterday’s earnings call between analyst John Janedis, New York Times (NYT) digital boss Martin Nisenholtz and ad boss Denise Warren. Seeking Alpha:

John Janedis–Wells Fargo Securities: Martin, can you just talk a bit more about where you’re seeing on the display side with the news media, did any major customers pull out? And do you think you’re losing share relative to the total industry?

Martin A. Nisenholtz: No, I mean I’ll ask Denise to comment on this specific to The New York Times, but I don’t think we can point to any major losses. I think that her comments about overall volume on the side, on the businesses, is true of the digital side as well. I would point out that, to point to Janet’s [Robinson, NYT CEO] comment about most of the hit, a disproportion of the hit coming in the classifieds area.

Denise Warren: Can I just jump in and remind you again that we had a really, really, really robust quarter overall for nytimes.com last year, but really in the display area? So we are up against really significant comps. That’s just some context that I think is important that you have.

And just based upon what we’ve been seeing in the marketplace comparing to other sites there, we do believe we are taking share in the display marketplace, and we do believe we are performing better than most of our competitors in the display marketplace.

Martin A. Nisenholtz: I mean Yahoo just announced a 14% decline in display. I think, while we’re not breaking out the numbers, I think our display performance overall at nytimes.com and across the News Media Groups was better than that.

All of this sounds right to me (for the record, last year the Times’s Web ads grew 18.3 percent in Q2). But if the Times wants to keep investors optimistic about the company’s prospects, it’s going to need a better pitch than “we’re doing better than Yahoo.”

UPDATE: For a pretty good roadmap of where the Times is headed–more dollars from customers, fewer from advertisers–check out this smart piece from the Columbia Journalism Review. It notes, for instance, that the Times is now making nearly as much from subscribers as from advertisers.

Operating income could be a problem, though: Factoring out foreign exchange swings and a one-time charge, Amazon delivered pro forma operating income of $240 million, and Wall Street was looking for something like $260 million.

As Henry Blodget points out, Amazon’s North America media sales (books, CDs, DVDs, etc.) have flat-lined in the last year. This is what that looks like in graph form (click to enlarge):

Now listening to the stultifying earnings call, which does not feature Jeff Bezos. Assuming there’ll be questions about the Zappos deal; I also assume that Amazon (AMZN) won’t have much to say about it beyond the announcement it put out yesterday. But I’ll add in any highlights below.

Q. Mary Meeker wants to know if Amazon is seeing a slowdown in media sales due to the transition to digital. She’s also interested in the possibility that mobile could be a big deal.

A. Media is slow, but it doesn’t seem to be related to digital. Still very early, and Amazon is seeing good unit growth there (Kindle, MP3 store, movie service). Not much to say about mobile.

Q. Any plans to take Kindle overseas?

A. Nonanswer.

The publisher was able to take a big chunk out of operating costs, knocking them down 20 percent. But revenue fell faster. The paper did say, though, that things got less bad as the quarter progressed, and that they’ll get slightly less bad next quarter, too.

The numbers: After factoring out one-time charges and benefits, the Times posted earnings of eight cents per share, well above the four-cent loss the Street was expecting. But revenue dropped 21 percent, to $585 million; the consensus was $603 million.

The Times posted an operating profit of $23.3 million; without one-time charges that number would have been $66.1 million. That’s worse than the $100 million the paper made a year ago, but much better than the $74.5 million it lost (net) in Q1.

But! Ad revenue declined 30.2 percent, an acceleration from last quarter’s 28 percent drop. In addition to the regular culprits, the Times noted a “lower volume of online advertising.” More details on that: Internet revenue dropped a shocking 14.3 percent, and Internet ad revenue was down 15.5 percent; last quarter they were down 5.6 percent and 6.1 percent.

The assessment from Times CEO Janet Robinson:

Based on what we have seen so far in July, we expect the advertising environment to continue to be challenging. We believe the rate of decline will moderate slightly in the third quarter from what we experienced in the second quarter.

As we look ahead, an enduring constant is the outstanding journalism of The New York Times Company and the esteem in which it is held by our readers. For the balance of the year, we are focused on developing innovative new products and platforms based on our high-quality journalism, particularly in the digital area, and continuing to aggressively lower our cost base to better align it with our revenues. When the economy and ad markets improve, we believe we will be very well positioned to benefit from the restructuring of our business.